On Wednesday January 25th HUD released an announcement detailing how it would monitor lenders default rates and the consequences for not meeting their guidelines. Later in the press release there was a small mention on a topic that could make FHA loans more expensive for the consumer.
They announced they’re going to issue a proposal to limit seller concessions. Currently FHA allows up to a 6% seller credit for closing costs, under the proposed rules mentioned in their July 15th 2010 memo, it would be reduced to 3%.
How would this make a difference?
FHA loans require tax and insurance impounds and there are times when up to 9 months of property taxes need to be collected. In high costs areas this cost alone would eat up a large portion of a 3% seller credit and cause the buyer to come in with additional money.
With the reduction it could also prevent borrowers the ability to pay the 1% upfront mortgage insurance premium to be paid by the closing costs, forcing them to roll it into the loan amount and paying interest on it for the term of the loan.
Once HUD publishes the proposal there will be a 30 day public comment period before they make a final ruling; there’s no set date for this to take effect.
Michael Regan (NMLS #275695) is a mortgage banker who specializes in Marin, Sonoma, and Napa counties. You can reach him at 415-672-2499 or 707-508-8473 for all your financing needs.